Wall Street's Hot New Financial Product: Your Rent Check

[octoberlib]

Toward the end of 2012, Mark Alston, a real estate broker in Los Angeles, began noticing something strange. Home prices were starting to rise, and fast—about 20 percent annually. Normally, higher home prices would signal increased demand from homebuyers and indicate that the economy was rebounding. But the home ownership rate was still dropping. Somehow, the real estate market was out of whack.Then there were the buyers themselves. "I went two years without selling to a black family, and that wasn't for lack of trying," recalls Alston, whose business is concentrated in inner-city neighborhoods where the majority of residents are African American and Latino. Now all his buyers were businessmen in suits. And weirder yet, they were all paying in cash.

Over the last two years, private equity firms and hedge funds have amassed an unprecedented real estate empire, snapping up Spanish revivals in Phoenix, adobes in Los Angeles, Queen Anne Victorians in Atlanta, and brick-faced bungalows in Chicago. In total, Wall Street investors have bought more than 200,000 cheap, mostly foreclosed houses in some of the cities hardest hit by the economic meltdown. But they're not simply flipping these houses. Instead, they've started bundling some of them into a new kind of financial product that could blow up the housing market all over again.

No company has bought more houses than the Blackstone Group, one of the world's largest private equity firms. (Its many investments include Hilton Hotels, the Weather Channel, and SeaWorld. Among its institutional investors are Goldman Sachs, Morgan Stanley, Citigroup, Bank of America, Deutsche Bank, and JPMorgan Chase.) Through its subsidiary, Invitation Homes, Blackstone has picked up houses through local brokers, at foreclosure auctions, and in bulk purchases. Last April, it bought 1,400 houses in Atlanta in a single day. In Phoenix, some neighborhoods have a Blackstone-owned home on just about every block. As of November, Blackstone had acquired 40,000 houses, most of them foreclosures, worth $7.5 billion. Today, it is the largest owner of single-family rental homes in the nation.

But buying houses cheap and then waiting for them to appreciate isn't the only way Blackstone is making money on these deals. It wants your rent check, too. In November, after many months of hype, the firm released the first-ever rated bond backed by securitized rental payments. Joining forces with Credit Suisse, Deutsche Bank, and JPMorgan (which recently paid a record $13 billion fine to settle accusations of ripping off mortgage investors), Blackstone has bundled the rental payments from more than 3,200 single-family houses, offering investors its mortgages on the underlying properties as collateral. After investors tripped over themselves to buy into the $479 million bond, Blackstone's competitors announced that they, too, would develop similar securities.

http://www.motherjones.com/politics/2014/01/blackstone-rental-homes-bundled-derivatives

[dixiegrrrrl]

1. which explains the enormous wave of foreclosures

even on familes that were not behind in mortgages.
And explains why average people trying to bid on houses at foreclosure auctions were not able to buy one..
they were outbid by the same banks that gave out the bad loans that led to the foreclosures in the first place.

now the interesting question is....are the titles cleared on the houses that were foreclosed by banks, and then sold to Blacstone et al?
i don't think they were..I think they are still registered under MERS.
Because there was no clear title after the original mortgages were forclosed.
BOA has admitted that Countrywide mortgages were destroyed.

student loans and car loans are being securitized also.

[ms.smiler]

7. dixiegrrrl, I know you understand these issues and this scam.

I’ll pick up at the point of foreclosure. Most often, the servicer who wrongfully foreclosed on the property submits a credit bid, no money at auction. Then the servicer usually Titles over the property to Fannie, the party who owned the Note all the while.

I suspect that most often the Blackstone Group is picking up the properties in bulk purchases from Fannie. Not just anyone can purchase in bulk from Fannie, only approved buyers. That is the way to obtain the absolute best price on these homes. One example I found was a $100,000 home purchased for about $3,000.

They may or may not spend any money on the home prior to rental. Now whether a foreclosed home winds up on the market for sale and an unsuspecting buyer steps into the home, or a renter moves into it, the same thing can happen.

The original homeowner may wise up to the fact they were wrongfully foreclosed and go to court to void the sale.

As you are aware, I’ve been fighting the banksters for about two years or so. It seems appropriate to comment here that original homeowners ARE beating the banksters more often than people know or realize. Checks are being written and settlements with confidentiality agreements are being signed. The buyers of foreclosed properties and the renters of same should be aware that the property may come with the extra special bonus of legal entanglements.

So no, these properties don't come with clear Titles. Our land records are filled with millions of invalid, forged and robo-signed documents involving foreclosed properties, refinanced properties and properties with paid mortgages. Even if MERS doesn't appear in the land records, there can still be a Title problem. This explains why I filed a Quiet Title.

[dixiegrrrrl]

2. Asked why the public should expect rental-backed securities to be safe,

the hedge fund investor responds, "Trust me."

sound familiar?

so, they own the jobs, the banks, the gov. and the housing now.

[octoberlib]

3. This article was the first I'd heard of these kinds of bonds.

This won't end well.

[dixiegrrrrl]

6. They are turning every kind of debt into bonds.

Student debt ain't gonna end well, either.
There are simply not enough jobs to repay the debts.

[woo me with science]

4. K&R

[reformist2]

5. If nothing is done, Wall Street will snap up all the homes and we will be a nation of renters.

[flamingdem]

8. Why do we allow foreigners to snap up homes

and turn them into financial products?

That will destroy any middle class dreams of living well, rents are through the ceiling due to this so who can save for a downpayment?

So.. the only ones buying? Foreigners.

[woo me with science]

9. kick